Saving Obama from a Bad Trade Deal

Republican intransigence may have saved the president's legacy—from himself.

(AP Photo/Evan Vucci, File)

In this June 11, 2013, photo, President Barack Obama speaks in the East Room of the White House in Washington, prior to a trip to Europe for a Group of Eight summit of major Western democracies, where the proposed Transatlantic Trade and Investment Partnership with Europe was be a top item. The deal is touted as a means of boosting growth and jobs by eliminating tariffs and other barriers, but those expectations are unlikely to be fulfilled in the deal, which would benefit corporations far more than governments or citizens, which would likely be hurt.

Plans to rush fast-track authority for two trade deals for a quick House and Senate vote abruptly broke down on Tuesday. The White House was hoping to put the vote to Congress as early as this week.

But Republicans wanted to see more details of one of the deals, which addresses trade with Pacific nations—before agreeing to a fast-track vote. Democrats who favored the deal were seeking some concessions to appease their skeptical colleagues.

An aide to Senator Ron Wyden, the Democrats’ lead Senate negotiator, told Reuters: "Senator Wyden is looking for some good, eleventh hour concessions that he can get to demonstrate to Democrats that he has gotten the best deal possible.” Republicans, however, refused to deliver even window dressing.

The vote is now off until April at the earliest. But April may be too close to the gravitational field of the 2016 elections, and the whole scheme could go down. The deadlock could be a huge blessing in disguise for the Obama administration, which has fought hard for two trade deals that most Democrats oppose.

These deals would eclipse some of Obama’s very remarkable achievements, including rescuing the country from a depression, passing comprehensive health reform, and taking climate change seriously. The deals would increase corporate power and increase inequality.

History will be more kind to this President than what a bad dose of Fox News would suggest—unless Obama trades his accomplishments away to a Republican-dominated Congress and the group of private interests that have hijacked U.S. trade policy.

The first deal is the nearly finished Trans-Pacific Partnership Agreement (TPP) with Japan, Canada, Chile, Malaysia, Vietnam, and other countries in the Pacific Rim. The TPP aims to bring China in upon completion, and China has expressed interest. The second is the Trans-Atlantic Trade and Investment Partnership (TTIP), a treaty with the entire European Union.

These pacts would bring little in terms of economic benefit to the United States economy, but they will bring high costs. Obama’s treaties rebrand regulations to protect public welfare as protectionism, and grant private corporations the right to govern them.

Hijacked Trade Policy

To Obama’s credit, he saw early on that U.S. trade policy had taken a wrong turn, particularly with the North American Free Trade Agreement (NAFTA), and the Central American Free Trade Agreement (CAFTA), and pledged to change the direction of trade policy. But after finding himself weakened by special interests and Republican control of Congress, the president has abandoned his pledge.

On the campaign trail in 2008, Obama told Ohio voters: "I voted against CAFTA, never supported NAFTA, and will not support NAFTA-style trade agreements in the future. While NAFTA gave broad rights to investors, it paid only lip service to the rights of labor and the importance of environmental protection."

Obama also pledged, in an answer he wrote on questionnaire from the Oregon Fair Trade Coalition:

With regards to provisions in several free trade agreements that give foreign investors the right to sue governments directly in foreign tribunals, I will ensure that foreign investor rights are strictly limited and will fully exempt any law or regulation written to protect public safety or promote the public interest. And I will never agree to granting foreign investors any rights in the U.S. greater than those of Americans.

Also to his credit, during his first term Obama also created a commission to make recommendations toward a new model treaty that would enshrine his promises. I had the honor to serve on that group, but was shocked to find just two other academics, a few members of civil society, but a strong representation of special interest groups that saw the need for no change at all. In the end, the commission couldn’t come to a unified set of conclusions, and those of us in the minority signed a note in opposition to the corporate-led recommendations that outlined the principles for making U.S. trade policy more balanced.

Despite such pushback, Obama inspired a healthy debate in Congress over the past few years regarding how U.S. foreign economic policy can rectify past wrongs and expand the administration’s achievements and goals across the world. Many have argued that the U.S. should take the lead on a trade policy that helps the U.S. and our negotiating partners enhance financial stability while facilitating trade and investment in goods and services that will help us transition to a low-carbon, less-toxic, and more inclusive economy.

Representative Sandy Levin from Michigan—a state hit hard by lopsided trade agreements—has tabled a bold reform package for the TPP. Levin proposes reforms to the TPP that would grant better market access for agricultural and automotive goods, and strengthen worker rights, environmental protection, and provisions for the access to medicines for the U.S. and its trading partners. Levin also proposes key provisions that draw a clear line in the sand that would prevent multinational corporations from taking TPP governments to private tribunals and claiming that regulations for workers, the environment, and financial stability are barriers to trade.

By 2014 those special interest groups had completely taken over the administration’s trade policy—so much so that he abandoned his pledges and his party to side with the Republicans in an effort to ram through a blueprint for trade deals that is at fundamental odds with the Obama presidency.

The Washington Post documented this take over in an investigative report titled “Industry voices dominate the trade advisory system.” The Post found that there are 566 advisory group members that can look at U.S. trade proposals and comment on them (Congress members or their staff can not). According to the Post, though, 480 of those advisers represent industry or trade association groups—or 85 percent. Those academics, unions, and civil society members that can take part are most often relegated to small sub-committees that don’t get access to the meat of the deal.

It is thus no surprise that Obama’s new trade pacts would bring big gains to private interests and high costs to the public.

It's (Not) About the Economy, Stupid

The United States already enjoys historically low tariffs with its TTP and TTIP partners. For that reason, even the most optimistic economic modeling efforts yield miniscule benefits from the president’s trade agenda.

The Washington-based Peterson Institute for International Economics estimates that the TPP would only boost U.S. GDP by 0.38 percent in 2025. That is likely an overestimate, given the estimators' assumption of full employment for the U.S. and all trading partners. Nevertheless, the administration has been endlessly quoting the Peterson Institute's findings out of context, and tacking on that the agreement would also bring 650,000 jobs to the U.S. economy.

The administration’s fuzzy math raised so many eyebrows that it prompted Glenn Kessler, author of the Washington Post’s Fact Checker blog, to take a look. Kessler went back to the Peterson Institute's study and to its authors and confirmed that the Peterson Institute’s study sees only a 0.38 percent increase in U.S. GDP, and does not see any improvement in jobs to the U.S. economy.

In modeling based on the Peterson Institute projections, economist David Rosnick estimates the TPP would accentuate inequality in the United States. Under the TPP, reckons Rosnick, the median U.S. income would fall relative to the incomes of the wealthy (which will rise under TPP) and in absolute terms, thus middle-class U.S. workers to take home less in 2025 than they earn today.

Thus the TPP would contribute to an already alarming trend. According to economist Josh Bivens, deals like the TPP have already brought job losses and lower wages to the tune of $1,800 per year for full time workers without a college degree.

The story is similar for the proposed Trans-Atlantic Trade and Investment Partnership, or TTIP. The most optimistic studies by the European Union put the benefits of the TPP for the U.S. at 0.40 percent of GDP—way out in 2025. Adding the two deals together would thus yield all of about eight one-hundredths of one percent to U.S. GDP per year until 2025—amounting to nothing less than a rounding error when put in proper context.

And with both deals, our loss is not our trading partners' gain. The benefits for all the TPP countries are estimated by the Peterson Institute to be 0.49 percent of their combined GDP, and the TPP is estimated to actually hurt the economies of Indonesia, Thailand, the Philippines and many South Asian countries. Official estimates by the E.U. put the TTIP’s benefits for the Europeans at 0.49 percent of GDP far into the future, and more realistic modeling efforts conducted by Tufts University economists estimate that the TTIP would make Europe worse off.

It's About Elevating Rights of Corporations Over Citizens' Rights

The TPP is the furthest along and reveals the depressing similarity between Obama and Bush trade policy. Leaked text of the TPP confirms that bona fide regulations to protect public welfare have been recast as illegal barriers to trade by the big corporations in on writing the rules of U.S. trade policy. What is worse, Obama’s new deals would let the private corporations themselves be the ones to govern key parts of these treaties.

Despite the rhetoric from the United States Trade Representative’s office, the nearly-done TPP makes few improvements on labor and environmental standards beyond a compromise deal struck with the Bush administration in 2007, worsens access to medicines, and could make all TPP members more vulnerable to financial crises.

A 2014 GAO study signaled the inadequacy of the 2007 compromise, as it found that labor violations remain rife in post-2007 treaties. On the environment, Peru has become a hotbed for illegal logging that has also come with the murder of environmental activists—despite the 2007 compromise. The deal would also expand draconian intellectual property rules that would choke access to medicines. What is more, the deal would limit the ability of our trading partners to prevent and mitigate financial crises.

As Senator Elizabeth Warren argued in a recent Washington Postopinion article, perhaps the most egregious aspect of Obama’s new trade deals are that they allow foreign investors to govern the core aspects of the agreement. She writes:

Agreeing to ISDS in this enormous new treaty would tilt the playing field in the United States further in favor of big multinational corporations. Worse, it would undermine U.S. sovereignty.

Senator Warren was referring to the system under many U.S. treaties referred to as “investor-state dispute settlement (ISDS),” which allows private corporations the right to challenge U.S. laws and the laws of our trading partners and then directly sue them in private tribunals without ever stepping into a court of law.

This stands in stark contrast with the procedures of the World Trade Organization, where nation-states and regulators take cases against each other that are decided in relatively public tribunals.

These ISDS procedures are the same measures that Obama campaigned against. Big multinational corporations have been using these rules to pick off regulations in poorer countries for years. What makes the president’s new trade package most worrisome is that it will now open the door to attack U.S. law too.

In other trade deals that have ISDS, multinational companies have been using ISDS on every issue where the Obama administration has made gains. On jobs and labor a French company sued Egypt because Egypt raised the minimum wage. A Dutch company sued the Czech Republic because the company was not bailed out under provisions that look at lot like what is in the Dodd-Frank bill.

There is a case by a Slovakian company against Greece for the restructuring of its debt in the wake of the European crisis—even though the Greek debt deal was struck by the International Monetary Fund (IMF) and the European Central Bank. There was a case against Malaysia for measures it took to stem the retreat of financial flows from that country in the wake of the Asian financial crisis of the 1990s, as well. Despite new rules by the IMF and a letter signed by over 250 economists, the Obama administration’s deals would enshrine the ability of Wall Street banks to move the savings of American taxpayers in and out of the country with out any caution about financial stability at home or abroad.

And impact on health care is likely to be profound. In Canada, the Eli Lily Corporation is suing Canada for $100 million in an attempt to be able to charge higher prices in that country even though the Canadian Supreme Court has already ruled against them. Philip Morris is using ISDS to go after Uruguay’s new regulations on the health impacts of tobacco use.

Actions such as these, if allowed under U.S. policy, will fly in the face of Obama’s health-care agenda. Obama’s new budget proposes to reduce special monopoly protections for pharmaceutical firms for biologic medicines—drugs used to combat cancer and other diseases that cost approximately 22 times more than conventional medicines. To lower prices and lesson the burden on Medicare and Medicaid, the administration’s 2015 budget would reduce the period of monopoly protection for biologics from 12 to seven years. Obama says this would save U.S. taxpayers more than $4.2 billion.

Yet the TPP would grant these same companies 12 years of protection and the ability to go after the government in private tribunals. A new study finds that the TPP would reduce the share of Vietnam’s AIDs patients who have access to life-saving antiretroviral drugs from 69 to 30 percent—cutting access to life saving drugs to upwards of 45,000 Vietnamese currently covered.

Some of the most worst cases have been against environmental regulations. U.S. companies have gone after Canadian regulations on fracking and renewable energy standards, and have filed against Peru (despite the 2007 compromise) and Ecuador for more than $3 billion over measures to clean up toxic pollution and stem the deforestation of the Amazon. A Swedish company has filed a $1 billion claim against Germany for new nuclear safety regulations.

U.S. companies have been using our treaties to attack the regulations of other countries and the TPP will expand those rights to Asia. Now the U.S. law could come under attack as well. Under the TPP and TTIP we could see Japanese, French, German, and later Chinese companies come after our system of public welfare.

The Washington watchdog group Public Citizen estimates that over 3,400 parent corporations in the E.U. own more than 24,000 subsidiaries in the United States could. Business Europe, a key business lobby, Public Citizen reports, assesses the rules under TTIP this way: “U.S. fuel tax credits and Cellulosic Biofuel Producer Credit should become impossible.” And the European Association of Dairy Trade has asserted that the Grade-A safety standard for milk is an ‘obstacle’ that “is both highly cumbersome and expensive.”

Even closer to home, the CEO of the Canadian company that would benefit from the Keystone pipeline told Politico that his company could eventually consider filing a claim against Obama’s veto of the controversial program. The E.U. and Canada have higher standards than the U.S. does; imagine what Chinese state-owned enterprises that have shunned much weaker health environmental regulations in China would see as ‘obstacles’ in the United States when China gets wrapped into the TPP, and can use the ISDS provision to challenge U.S. regulatory regimes. The Obama administration says it wants to write the rules for China and other Asian countries; if these are rules that Chinese companies will be able to take advantage of, too, they are doubly misguided.

Saving the Legacy

The underpinnings of the president’s most crowning achievements would be jeopardized under these agreements. This is not worth a supposed gain of 0.78 percent of GDP in 2025, a figure that is only as good as its very dubious assumptions.

It’s a mercy that fast-track authority is now stalled. Rather than exporting a model of deregulation that elevates the rights of private corporations over national court systems, the United States needs to uphold its tradition of fighting for freedom and equality, the betterment of humankind, and a protected environment at home and abroad.

About the Author

Kevin P. Gallagher is a professor of global development policy at Boston University’s Pardee School for Global Studies, where he co-directs the Global Economic Governance Initiative. His book, Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance, has just been published by Cornell University Press.